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ACCEPT THE SINGLE AUDIT AND INDEPENDENT AUDITORS’ REPORTS FOR THE YEAR ENDED JUNE 30, 2024
recommended action
RECOMMENDATION
It is recommended the Audit Committee accept by motion the Single Audit and Independent Auditor’s Reports for the year ended June 30, 2024, and submit to the City Council for acceptance.
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Summary
Presented for the Audit Committee’s review is the City of Stockton’s Single Audit and Independent Auditor’s Reports (Attachment A) for the year ended June 30, 2024. The report includes the auditor’s opinion that the City complied, in all material respects, with the types of compliance requirements referred to in the report that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2024. The auditors identified nine (9) findings.
DISCUSSION
The Single Audit and Independent Auditor’s Reports is an annual audit of federal awards or pass-through of federal awards to the City. The auditors have issued an unmodified opinion that the City complied, in all material respects, with the compliance requirements of the grants.
During the audit, the auditor provides a review of the City’s financial reporting systems and procedures that are used to ensure accurate financial statements. An internal control is designed to provide reasonable assurance that the City meets its objectives regarding the reliability of financial reporting, effectiveness, and efficiency of operations and compliance with applicable laws and regulations. The auditor considers the City’s internal control over financial reporting during the design of audit procedures for financial statements. The auditors do not express any opinion on the effectiveness of the City’s internal controls.
Present Situation
There was little change in the City’s expenditures of federal awards compared to the previous year, increasing from $145.6 million in Fiscal Year (FY) 2022-23 to $148.1 million in FY 2023-24, or 1.7%. Program and administrative staff have not increased sufficiently to properly administer the increase in federal awards and the variety of new programs seen in recent years. Each program has a separate set of regulations to follow. Examples of newer programs include American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds (ARPA), Water Infrastructure Finance and Innovation (WIFIA), and Emergency Rental Assistance passed through the State of California.
The Single Audit report identifies nine (9) findings summarized below:
2024-001 City’s Administrative Services Department (ASD)
Condition:
The City’s ASD experienced significant turnover in key finance positions and had several vacant roles during the year ended June 30, 2024. As a result, ASD encountered:
• Delays in performing timely reconciliations,
• Weaknesses in segregation of duties,
• Reduced oversight and review capacity,
• Delayed year-end close, and
• Increased reliance on audit adjustments to finalize financial statements.
City’s Corrective Actions:
The primary contributing factors were high staff turnover and vacant positions within the Accounting Services Division, which limited the division’s capacity to effectively manage daily operations and appropriate staffing levels. Recruitment and retention of qualified personnel will be prioritized to address vacancies and reduce turnover. Management will strengthen oversight and review procedures to improve accountability and consistency in financial reporting. In addition, staff training and succession planning will be implemented to reduce reliance on audit adjustments.
2024-002 Internal Control Over Financial Reporting - Year-End Closing, Reconciliation, Accuracy in Financial Reporting, and Delay in Issuance of the Single Audit
Condition:
The auditor identified several observations on the internal controls over financial reporting and the year-end close process for the year ended June 30, 2024:
Year-End Closing
The City’s year-end accounting close process was both delayed and heavily reliant on post-closing adjustments. Over 100 journal entries were recorded after the initial trial balance was provided in December 2024. The City did not maintain an adequate process to ensure the accuracy of balances prior to the issuance of the trial balance for an audit. Also, several accruals related to receivables and payables were not recorded at year end when the trial balance was provided.
Reconciliation & Accuracy in Financial Reporting
• Cash and Investments / Bank Reconciliation: During the audit, the auditor noted
o The March 2024 bank reconciliation had a $573,587 variance with no supporting documentation.
o The June 2024 reconciliation also had an unresolved $60,158 variance, and outstanding checks included items that had already been voided and reissued, misstating cash by $820,316 until it was corrected.
• Accounts Receivable, Year-End Accruals, and Deferred Revenue:
o During subsequent cash receipts testing to validate the completeness of accounts receivable, the auditor identified receivables totaling $2,327,191 that were not recorded in the appropriate reporting period, which resulted in several adjusting entries. In addition, during the comparison of account balances to supporting schedules, receivables totaling $1,363,346 did not reconcile to the underlying detail schedules, which were corrected through additional adjusting entries.
o During the search for unrecorded liabilities testing performed from subsequent check registers to validate the completeness of accounts payable, the auditor noted accounts payable accruals totaling $798,871 that were not recorded in the appropriate reporting period, resulting in two additional adjusting entries.
o For unearned revenue and unavailable revenue, the City provided multiple rounds of revised supporting schedules during the audit. Differences of $604,983 and $5,356,229 were noted for unearned revenue and unavailable revenue, respectively, between the original and final schedules, as listed below.
|
Description |
Original Schedule |
Final Schedule |
Difference |
|
Unearned revenue |
(54,679,441) |
(55,284,424) |
604,983 |
|
Unavailable revenue |
7,848,990 |
2,492,761 |
5,356,229 |
• Stale Balances on Receivables, and Payables: The auditor noted stale receivable and payable balances totaling $497,540 and $58,116, respectively, that remain on the City’s records and have not been periodically reviewed and resolved.
• Payroll and Related Liabilities: During the year, the City processed 5,412 retroactive payments totaling $1,670,009 to 1,383 employees to correct underpayments. Additionally, during walkthroughs and tests of controls over payroll related transaction cycle, the auditor did not observe evidence of supervisory review and approval of timesheets, whether through electronic signoff or documented manual approval.
• Compensated Absences: Testing identified five employees whose compensatory time accruals exceeded the maximum limits established by the applicable Memoranda of Understanding. Five (5) out of eight (8) samples tested are above the maximum accrual limit for compensatory time. In total, these five (5) samples counted for 225 hours accrued in excess of the cap, representing approximately 26% of total compensatory time.
Delay in Issuance of the Single Audit
The City has experienced significant delays in the preparation and issuance of the Single Audit required under Uniform Guidance. Due to the delay in issuance of the Single Audit report, the Data Collection Form was not submitted timely.
City’s Corrective Actions:
Management acknowledges responsibility for the preparation and fair presentation of the City’s financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP), including the design, implementation, and maintenance of effective internal controls and the timely provision of accurate financial information.
To address the identified deficiencies and prevent recurrence, management will strengthen year-end closing and financial reporting procedures by establishing and maintaining a formal year-end closing checklist and calendar that includes required accruals, revenue recognition reviews, deferred inflow classifications, and clearly assigned responsibilities with established deadlines. Monthly and year-end reconciliations will be performed and documented for all significant balance sheet accounts, including accounts receivable, payables, prepaids, deferred items, and cash. These reconciliations will be completed prior to issuance of the trial balance and will be subject to documented supervisory review and approval. All audit-proposed journal entries will be recorded to correct identified misstatements, and pre-audit internal reviews will be implemented to ensure account balances are materially accurate before submission to external auditors and to minimize post-closing adjustments.
Controls over revenue recognition and deferred inflows will be enhanced through standardized review procedures, consistent reconciliation of subsidiary ledgers to the general ledger, and refresher training for accounting staff on applicable Governmental Accounting Standards Board (GASB) requirements. Regular aging reviews of receivables and payables will be performed to identify and resolve stale or unsupported balances in a timely manner.
Payroll and related controls will be strengthened through documented supervisory review and approval of all employee timesheets, payroll adjustments, rate changes, and retroactive payments prior to processing. Management will implement procedures to reduce the need for retroactive payroll corrections and will conduct periodic payroll and compensation reviews to ensure compliance with approved pay rates, labor agreements, and payroll policies. Monitoring compensatory time and leave accruals will be enhanced through system alerts for employees approaching accrual limits, regular supervisory review of accrual reports, and enforcement of policies requiring timely use or payout of compensatory time in accordance with applicable Memoranda of Understanding.
Formal written bank reconciliation procedures will be implemented requiring monthly reconciliations to be completed within established timeframes, subject to supervisory review and approval. Reconciling items will be promptly investigated and resolved to ensure the accuracy of cash balances.
To support timely audit and compliance reporting, management will improve coordination among Finance, Human Resources, Payroll, and Grants Administration. The City will align year-end close, financial statement preparation, and audit timelines to ensure timely issuance of the Single Audit in compliance with Uniform Guidance. Clear responsibility will be assigned for preparation and timely submission of the Data Collection Form, and compliance with federal reporting deadlines will be monitored.
2024-003 Internal Control Over Preparation and Reconciliation of Schedule of Expenditures of Federal Awards
Condition:
During the audit, the City provided multiple rounds of revisions to the Schedule of Expenditures of Federal Awards (SEFA), which impacted the major program determination and the type A and type B threshold calculation.
During the review of the initial SEFA provided by the City, the auditor noted that ARPA Expenditures were reported as $35,513,281; however, the general ledger reflected expenditures of $15,225,289. This difference changed the major program determination.
In addition, during the auditor’s review of the SEFA, they noted that for Emergency Solutions Grant awards (ESG) closed during the fiscal year 2024, the City’s initial SEFA and supporting expenditure listing were not complete and required subsequent revisions to align cumulative SEFA expenditures to cumulative drawdowns, leading to an adjustment of $26,235 additional expenditures related to grant number E-20-MW-06-0026.
City’s Corrective Actions:
The City will enhance controls over the preparation of the SEFA by improving communication between the Finance Division and grant administering departments to ensure timely identification and accurate reporting of all federal and pass-through programs. The City will provide additional training to finance and grant management staff related to federal award identification and uniform guidance reporting requirements. In addition, the City will implement and document a quarterly reconciliation between cumulative SEFA expenditures and cumulative drawdowns by award for Housing and Urban Development (HUD) programs. This will be applied on an ongoing basis to ensure the accuracy and completeness of the SEFA, including amounts reported at award closeout.
2024-004 Allowable Costs/Cost Principles - Internal Control and Compliance Over Payroll Expenditures
Condition:
CDBG - Entitlement/Special Purpose Grants Cluster
For two (2) out of 40 payroll samples tested, employees’ benefits and compensated leave were charged to the Community Development Block Grant (CDBG) program for the pay periods selected even though the employees did not have any actual hours charged to the program.
Emergency Solutions Grant Program (ESG)
For two (2) employees out of the seven (7) tested with ESG and ESG-CV charges, payroll-related costs were charged to the ESG program even though these employees were not included on the official budget allocation file used to support the distribution of payroll costs. The exceptions consisted of benefits and compensated leave and occurred in five (5) of 23 total payroll transactions tested. In addition, the review of the disbursement reports during FY 2023-24 identified three (3) additional employees with ESG or ESG-CV payroll charges who were not included on the official budget allocation file, bringing the total to five (5) employees not included on the official budget allocation file.
Coronavirus State and Local Fiscal Recovery Funds (ARPA)
The auditor’s review of the distribution reports indicated that one (1) employee who did not work on ARPA during the pay period tested had benefit costs allocated to ARPA. In addition, for one (1) out of the 40 employees tested, certain benefit amounts were charged twice to the ARPA program, with duplicate lines posted to the same expense account as regular salaries. The City indicated that the duplicate charges were due to a system setup error.
City’s Corrective Actions:
The City will strengthen internal controls over the preparation of the SEFA by implementing a formal review process over payroll expenditures to ensure costs are recorded and reported in the correct fiscal year in both the financial statements and the SEFA. The Finance Division will perform and document a fiscal year cutoff review of federal grants expenditures prior to SEFA finalization to verify amount reported agree to the general ledger for the applicable fiscal year, with documented supervisory review and approval. These procedures will be implemented and applied on an ongoing basis.
2024-005 Procurement and Suspension, and Debarment - Internal Control and Compliance Over Procurement and Verification Against the System for Award Management (SAM)
Condition:
Coronavirus State and Local Fiscal Recovery Funds (ARPA)
During the audit, the auditor noted that 11 out of 37 suspension and debarment samples tested, the City did not have documentation on verifying the vendors against the SAM to ensure that they were not suspended or debarred from federally funded purchases.
The auditor also noted that 31 out of 37 procurement samples tested, the City didn’t have purchase orders for these samples.
Assistance to Firefighters Grant
During the audit, the auditor noted that two (2) out of two (2) procurement samples tested, the City did not have documentation on verifying the vendors against the SAM to ensure that they were not suspended or debarred from federally funded purchases.
City’s Corrective Actions:
The City acknowledges the finding and is in the process of implementing a formal procurement policy. This is currently under development and is expected to be approved by FY 2025-26. To address these issues, the City will implement standardized procurement procedures requiring the use of purchase orders and direct invoicing, documented approvals, and verification of vendors’ eligibility for all projects. Procurement policies will include suspension and debarment checking using SAM.gov, and all supporting documentation will be retained in procurement files. Staff involved in procurement and grant management will receive training to ensure consistent compliance with the updated procedures and federal regulations.
2024-006 Reporting - Internal Control and Compliance over reporting
Condition:
CDBG - Entitlement/Special Purpose Grants Cluster (CDBG)
The auditor noted that the City did not submit any of the four (4) quarterly Section 15011 Reports for the year ended June 30, 2024.
Coronavirus State and Local Fiscal Recovery Funds (ARPA)
During testing of the City’s reporting under the ARPA Revenue Loss category, the auditor noted that the City recorded $3,570,000 in expenditures related to revenue loss that were not reported in the quarterly Project and Expenditure (P&E) reports. Additionally, the April-June 2024 P&E report, which is also included in the annual performance report, incorrectly recorded an amount in 2023 revenue loss that duplicated the same amounts reported for 2022, resulting in a change to the reported revenue loss from the previous quarter. The auditor also noted that two (2) out of four (4) quarterly P&E reports required for the year ended June 30, 2024 were submitted after the required due dates as follows:
|
Grant/Project |
Period Covered |
Due Date |
Submitted |
|
SLT-3028-P&E Report-Q3 2023 |
July- Sept 2023 |
10/31/2023 |
11/5/2023 |
|
SLT-3028-P&E Report-Q1 2024 |
Jan- March 2024 |
4/30/2024 |
5/1/2024 |
Furthermore, the P&E report covering April-June 2024 did not include current period expenditure amounts for all projects. During the audit, the auditor found that the City reported only $11,867,558 in the P&E reports instead of the actual $15,225,289 in expenditures incurred during year ended June 30, 2024.
Water Infrastructure Finance and Innovation (WIFIA)
During testing, the auditor noted that the Annual Comprehensive Financial Report (ACFR) for year ending June 30, 2024 was dated on September 17, 2025, which was after the 180 days submission deadline (December 27, 2024).
City’s Corrective Actions:
This finding is related to COVID-19 funding that was administered during the height of the pandemic, when multiple funding sources were required to be expended simultaneously. Section 15011 reporting was a new requirement within the CARES Act of 2020, to the Department and the City at that time.
By the time this issue was identified as an area of deficiency in the prior audit period, it was no longer possible to retroactively correct or report for that respective audit year, nor for the current audit period. In response to the prior audit report, the City evaluated options to centralize Section 15011 reporting, given that it falls under the Federal Funding Accountability and Transparency Act (FFATA) of 2006 and is closely tied to procurement activities of over $150,000. The City explored whether this reporting could be managed through the City’s Grant Manager position under the ASD.
The City accepts the finding of noncompliance with WIFIA reporting requirements, as the ACFR for the year ended June 30, 2024 was dated September 17, 2025, which exceeded the required 180-day submission deadline of December 27, 2024. The delay was due to challenges in completing the City-wide ACFR resulting from ongoing staff turnover. As a corrective action, the City will strengthen internal processes and oversight to ensure the ACFR is completed and submitted in a timely manner in future reporting periods.
The City will implement enhanced internal controls to ensure timely, accurate, and complete submission of Quarterly P&E Reports for both SLFRF and ARPA Revenue Loss. Corrective actions include establishing a formal internal reporting calendar with assigned responsibilities to meet Treasury deadlines, performing a documented quarterly reconciliation of general ledger obligations and expenditures to P&E report amounts, correcting prior reporting errors or duplications, and requiring supervisory review and approval of all reports before submission to the U.S. Department of the Treasury. Additionally, the City will develop standardized reporting templates, provide staff training on Treasury reporting requirements, and maintain oversight by the Finance Director to ensure ongoing compliance, accuracy, and timely reporting of all expenditures.
2024-007 Special Tests and Provisions - Internal Control Over Environmental Reviews
Condition:
During testing of environmental review records, one (1) of 21 environmental review records tested did not include a signature from the responsible official. Although the environmental review documentation and supporting analysis were present, the Environmental Review Record (ERR) lacked the required signature from the certifying official, as required by HUD regulations.
City’s Corrective Actions:
Out of a sample size of 21 files, one (1) environmental review document was missing the required signatures. Current procedural documentation states that after the environmental review document is completed by the project manager, it is to be routed to the First Level Reviewer (Division Manager), then to the Certifying Officer for signature. The Department will diligently ensure that the documentation is completed and routed through the approval process and will make this a priority
2024-008 Special Tests and Provisions - Internal Control and Compliance Over Obligation, Expenditure, Payment Requirements
Condition:
During the audit, the auditor noted that for four (4) out of five (5) total sub-recipients tested this year, the ESG Grant Fund obligated to sub-recipients under obligation testing were outside of the obligation timeframe of 180 days in case of ESG and 240 days in case of ESG CV without further justifications.
In addition, the auditor noted two (2) out of three (3) samples selected for payment requirements testing were outside of 30 days window without further justifications.
City’s Corrective Actions:
The City has since implemented policies and procedures to ensure timely issuance of award letters to satisfy the 180-day obligation requirement, and processing of payments within 30 days of receipt of complete documentation, or to document the reason payment cannot be processed. Staff will continue to follow and improve compliance with these established processes and procedures to ensure timely contract execution and payment processing. While unforeseen circumstances may occasionally cause delays, such instances will be documented and addressed promptly.
2024-009 Special Tests and Provisions - Internal Control and Compliance over Housing Quality Standards
Condition:
During the audit, the auditor noted that the City has not performed any housing inspections required under the Housing Opportunities Made Equal (HOME) Investment Partnerships Program since 2019, citing staff shortages as the reason for nonperformance. Inspections are required every one (1) to three (3) years, depending on the number of housing units contained in the project.
City’s Corrective Actions:
HOME on-site monitoring requires dedicated staffing capacity. The Housing Division of the City’s Economic Development Department (EDD) has developed clear policies and procedures for HOME on-site monitoring; however, implementation has been constrained by limited staffing resources. EDD has requested additional staff in the most recent budget development cycles to support these requirements but has not been successful. EDD is evaluating alternative solutions, including the potential use of third-party consultants, to support implementation of HOME on-site monitoring requirements.
FINANCIAL SUMMARY
There is no financial impact associated with accepting these reports.
Attachment A - 2024 Single Audit and Independent Auditors’ Reports